Singapore's miracle economy wrestles with immigration in jubilee year

SINGAPORE (Reuters) - In five years, Singaporeans retiring will exceed those starting work. By 2025, the population could contract. The outcome: hiring gets tougher, firms move out and Singapore’s miracle economy gazes into a less lustrous future.

To avert the demographic crunch outlined in a government white paper about two years ago, immigration would seem like an easy fix. But instead the government has slashed foreign labor quotas following concerns among some Singaporeans that they are being cut out of the job market.

On Sunday, Singapore will mark half a century of independence, and marvel at its leap from the third world to the first. But progress in the next few years will be less momentous. The government expects economic growth to be less than half the 8 percent average rate of the past 50 years, adding that a shrinking workforce will challenge that forecast.

Restrictions on foreign workers have worsened a labor crunch, particularly in the manufacturing, services and construction sectors, in a country more known for its business-friendly policies. The curbs cut inflows of foreign workers to 26,000 last year, excluding domestic helpers. That’s a third of 2011.

“Is this painful? Yes, it is. Because for well over 30 years, businesses in Singapore had allowed themselves to become addicted to endless supplies of cheap, foreign labor,” Victor Mills, chief executive of the Singapore International Chamber of Commerce, told Reuters.

Over the years, as Singapore industrialized and transformed itself into a major electronics manufacturer and a global oil trading hub, demand for workers increased and immigration rules were relaxed.

The small island-state - spanning just 50 kilometers (31 miles) from east to west - has laid out plans for its economy to rise up the value chain and boost the productivity of its workers.

Prime Minister Lee Hsien Loong said earlier this month “there are no easy choices” on managing immigrants and foreign workers.

“There are trade-offs. If we have no foreign workers, our economy suffers, our own lives suffer. We have a lot of foreign workers, the economy will do well, (but) we have other social pressures, other problems,” Lee was quoted by the local Straits Times newspaper as saying.

Lee said the government will review the foreign labor situation in a few years.

“OVERKILL”

Immigrant restrictions accelerated after the 2011 general elections.

The ruling People’s Action Party suffered the biggest drop in its share of the vote ever, hurt by anxiety over rising income inequality, high housing costs and overcrowding of public transport due to foreigners.

Whether the disgruntled has been adequately appeased will be known when Singaporeans go to the polls, expected by the local media to take place as early as next month.

Chua Hak Bin, head of emerging Asia economics for Bank of America Merrill Lynch, said the foreign labor restrictions may have reached a point of being an “overkill”.

“There’s some risk that businesses, instead of increasing investments to raise productivity, are choosing not to invest and not to expand resident headcount,” he said.

Chua warned that private investment in Singapore has already been contracting for the past 1 1/2 years.

The government expects annual economic growth of 2-4 percent until 2020, or growth of about 3 percent on average, Finance Minister Tharman Shanmugaratnam said in April, adding that the forecast reflects a “new normal” in the economy.

“However, achieving even 3 percent growth on average will be an increasing challenge, as our labor force slows down in the years to come,” Tharman said, adding that the slowdown will be significant.

Singapore-based conglomerate Keppel Corp Ltd (KPLM.SI), one of the world’s largest offshore rig builders, said last month it has invested in its overseas facilities to increase production capability, unable to meet its labor requirements locally.

“Some of the work which we can’t do in Singapore, we will be shifting to our overseas yards,” CEO Loh Chin Hua said.